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American Public Plan All-Stars
Dominic Garcia, 34
Fund of Funds Manager, State of Wisconsin Investment Board (SWIB)
"No," Garcia says when asked whether SWIB used funds of funds in its recent push toward alternatives. "We are the fund of funds."
This is the secular shift of the American public pension sector. If LDI is the corporate plan buzzword and investment outsourcing the endowment buzzword, direct hedge fund investing—and a concomitant turn away from funds of funds—is the public plan equivalent. Wisconsin, although late to the party, epitomizes that. When Garcia (who also sits on the all-staff investment committee, chaired by the CIO) arrived in 2008 from the New Mexico pension system—"a week after the world fell apart"—there were "plans in the works to start investing directly, and raise the hedge fund allocation from next-to-nothing, but the crisis caused us to slow down," he says. This wasn't the result of an inexperienced board being frightened by extreme market events, however. The SWIB board, according to Garcia, "is extremely sophisticated by public plan standards. The governance model is really robust here—they willingly delegate a lot of manager selection decision-making to the staff". This also allows the plan to investigate more niche strategies such as risk parity—in which it invests significantly. And while the fund has approximately $800 million invested in hedge funds as of now, that's only 1% of its $80 billion portfolio—which means Garcia, who essentially sits on one of the larger fund of funds in the country, will continue to be an extremely popular man.
American Public Plan All-Stars: These five are riding—or perhaps leading is a more accurate word?—the secular wave of public plan investing: a massive alternative investments ramp-up. With more capital to put to work than God, the American public pension system's shift toward more sophisticated asset allocation will alter the asset management business in a way unseen before. Out is long-only active equity. In are hedge funds, private equity, and more. These five, if nothing else, should expect their phones to be ringing non-stop for, oh, the next 15 years.